Compound Interest Calculations; Specifying The Number Of Compounding Periods And The Periodic Interest Rate; Calculating The Number Of Payments Or Compounding Periods - HP 12C Platinum User Manual

Compound Interest Calculations

Specifying the Number of Compounding Periods and the Periodic
Interest Rate
Interest rates are usually quoted at the annual rate (also called the nominal rate):
that is, the interest rate per year. However, in compound interest problems, the
interest rate entered into i must always be expressed in terms of the basic
compounding period, which may be years, months, days, or any other time unit.
For example, if a problem involves 6% annual interest compounded quarterly for 5
years, n — the number of quarters — would be 5 × 4 = 20 and i — the interest
rate per quarter — would be 6% ÷ 4 = 1.5%. If the interest were instead
compounded monthly, n would be 5 × 12 = 60 and i would be 6% ÷ 12 = 0.5%.
If you use the calculator to multiply the number of years by the number of
compounding periods per year, pressing n then stores the result into n. The same
is true for i. Values of n and i are calculated and stored like this in Example 2 on
page 60.
If interest is compounded monthly, you can use a shortcut provided on the
calculator to calculate and store n and i:
To calculate and store n, key the number of years into the display, then press
gA.
To calculate and store i, key the annual rate into the display, then press
gC.
Note that these keys not only multiply or divide the displayed number by 12; they
also automatically store the result in the corresponding register, so you need not
press the n or ¼ key next. The gA and gC keys are used in Example 1
on page 59.

Calculating the Number of Payments or Compounding Periods

1. Press fCLEARG to clear the financial registers.
2. Enter the periodic interest rate, using ¼ or gC.
3. Enter at least two of the following values:
Present value, using $.
Payment amount, using P.
Future value, using M.
4. If a PMT was entered, press g× or g to set the payment mode.
5. Press n to calculate the number of payments or periods.
Section 3: Basic Financial Functions
Note: Remember to observe
the cash flow sign
convention.
49